The growing concerns in the world energy market about the risks of supply crunch have been a critical factor behind the recent surge in oil prices to a new record of $135/barrel.
As reported by the Economist, speculators are betting huge sums on the assumption that the oil market will remain tight for many years to come, owing to the inelasticity of demand and the constraints on long-term supply.

2008 may be seen as the year in which IraqÕs oil industry began to recover and, when the markets recognize this, it may take some of the edge off the oil price.

Saudi Arabia, the world’s largest oil exporter, is doing its bit to allay these concerns, but has acknowledged that once its current crop of oilfield projects is complete in around 2013, there will be little scope for further capacity increases.
If history had been kinder, Iraq could now be producing at a comparable level to Saudi Arabia. Instead, 13 years of sanctions and five years of internal conflict have eroded Iraq’s oil infrastructure and human capital. However, Iraq also has a history of recovery. Production peaked at over 3.5 million barrels/day (b/d) in 1980 on the eve of the Iraq-Iran war, but then averaged less than half that level during the eight-year conflict.
It had nearly recovered to 3.5 million b/d in 1990, after which the invasion of Kuwait and the subsequent UN sanctions severely limited exports, and hence production. In the five years before the US-led invasion of 2003, the sanctions regime gradually permitted greater exports, and production was often above 2.5 million b/d. However, it fluctuated considerably due to the impact of years of underinvestment, restrictions on the import of spare parts and isolation from the international oil industry.
This volatility in production has continued in post-Saddam Iraq, although the average level has usually been below 2 million b/d, and only exceeded the immediate pre-war level of 2.3 million b/d for the first time at the end of 2007. Operations have been frequently disrupted by events ranging from the bombing of pipelines to the murder of oil workers.
Iraq’s Deputy Prime Minister Barham Salih said in April that Iraq’s total reserves could be as high as 350 billion barrels, triple the 115 billion that has been its officially stated level for many years.
The figure is aspirational and should be treated carefully but, given that there has been barely any new exploration of Iraq’s promising geology in 30 years, an upward revision of the official reserves figure seems long overdue.
This underlines Iraq’s uniquely large reserves-to-production (RP) ratio, which was already the world’s highest and, based on Salih’s estimate and at the expected production level of 2.3 million b/d in 2008, would stand at a remarkable 415 years (compared with a world average of about 40 years).
If Iraq were able to achieve the average Middle East RP-ratio of 80 years then it would be pumping 4 million b/d based on the current reserves, and 12m b/d based on Salih’s aspirational estimate. Getting there would take some time, around five years for 4 million b/d and probably more than 20 years for the most optimistic level.
It would also require Iraq to achieve a sufficient degree of stability. However, if there are promising signs of progress over the next 18 months, then it might be enough to mitigate fears of shortages next decade and dampen the futures market.
Although there is some way to go, 2008 may be seen as the year in which Iraq’s oil industry began to recover and, when the markets recognize this, it may take some of the edge off the oil price.

Exxon Mobil Corp has scrapped with Venezuela’s Hugo Chavez over nationalized oil projects and sparred with US senators over high oil prices.
But the toughest challenge that Exxon, the world’s largest oil company, may be facing in recent years comes from its own ranks: A group of dissident shareholders pushing a proposal to split Exxon’s chairman and chief executive positions at Wednesday’s annual meeting. Rex Tillerson currently holds both jobs, Reuters wrote.
The company recorded two of the largest-ever corporate profits in history in 2006 and 2007, but a growing group of shareholders has publicly backed the proposal, citing Exxon’s lack of investments in alternative energy as their main motive.
The Rockefeller family is leading the charge, calling for a change at the top of the company that is closely tied to their famous fortune.

The US was expected to file a complaint at the World Trade Organization on Wednesday over tariffs the European Union imposed on computer monitors, cable converter boxes and printers, people familiar with the case said.
The US Trade Representative’s office plans to say that the EU is undermining a decade-old agreement to eliminate duties worldwide on technology products by contending that some new items fall outside the scope of the accord, the people say. Japan is likely to join in the case, they told Bloomberg.
The dispute concerns the 1996 Information Technology Agreement, which eliminates tariffs on high-tech products among the largest makers and consumers of electronic goods. The accord saves makers of those products $5 billion a year, according to the Consumer Electronics Association, a US industry group.
The initial case will involve three products, all developed after 1996, that the EU contends aren’t covered by the accord. It says that the flat-panel computer monitors that show videos are televisions, not computer components, and so face 14 percent duties.

Argentine farmers announced that they would again stop selling grain for export from Wednesday through June 2 in a deepening row with the government over export taxes. Protest leader Mario Llambias announced the measure in a statement read to reporters, AFP reported.
The farmers, major exporters of grains and soybeans, have been on strike since May 8 but leaders called a “truce“ last week to allow talks to go ahead with government negotiators.
Most of Argentina’s grain production is for export, and more disruption could affect supply to the strained world grain market, particularly in Asia.
Other protest measures include farmers refusing to sell cattle for farmwork, and setting up protest camps in major cities during the same time period.
The four main farm organizations announced the strike just hours after the Peronist party of President Cristina Kirchner issued a statement describing the protest as an “anti-democratic attack“ with the thinly-veiled aim of toppling the government.

Three major oil and shipping organizations have teamed up to put pressure on the Norwegian government to open up more areas of the scenic Arctic archipelago for oil and gas exploration.
The organizations have formed KonKraft, which has sent a report on oil exploration needs to Energy Minister Aslaug Haga, according to AFP.
KonKraft was said to be urging oil and gas exploration in the northern areas of the Barents Sea and around Svalbard, home to Norway’s polar bears. The call comes amid record oil prices and fears that the world’s oil production may have already peaked.
The archipelago is the northernmost part of Norway, with the country’s sovereignty recognized by the Svalbard Treaty, but seismic activity has been bitterly opposed by environmentalists and the fishing industry.
Last week, Norway’s three-party left-center government decided to allow seismic exploration of offshore areas near Lofoten, which also lies in the Arctic Circle. Aftenposten reported that both Haga’s Center Party and the Socialist Left had sought to delay seismic activity, but that Prime Minister Jens Stoltenberg of the Labor Party had apparently prevailed in ruling out a delay.